Watching ProBuild these days is like watching the Titanic sink: There's a sense of tragic inevitability coupled with concern that Builders FirstSource doesn't have nearly enough lifeboats to rescue all of ProBuild's employees. At least ProBuild won't go down as fast as the Titanic did; BFS' purchase won't close for several months. That will give some workers time to find other ways to rescue themselves, and give the rest of us an opportunity to examine what ProBuild did wrong so we can avoid the same troubles.
I joined ProSales six months after ProBuild was created, so I've been watching the company virtually its whole life. Over that time I've visited lots of ProBuild yards, interviewed its senior leaders, and talked with hundreds of people who worked for or were touched by the company. Those experiences lead to these personal conclusions. I invite you to add your own comments in the section below.
1. E Pluribus ... Confusion
I created this chart years ago to help me identify the parts that ultimately became ProBuild. All told, about 75 companies either were in ProBuild's ancestry or were acquired after the company was formed in 2006. Most people who've seen the chart soon quit questioning why ProBuild found it so hard to create a unified, interdependent team. ProBuild tried to bring its team together, most notably with its early campaign to promote "The Power of One." The contractors building the Tower of Babel had an easier job.
2. Big Builders' Screw Job
ProBuild started with a compelling premise. Big builders were accounting for an ever-larger share of the residential construction market, and to hear them talk, the next big wave would come through national purchasing and consolidated delivery of building materials. Thus, a dealer that had branches in the same places as a national builder had developments ought to enjoy a logistical advantage when competing for work. And negotiating one huge contract delivers economies that you don't find in making scores of small, local sales--right? Thus, when you'd ask ProBuild CEO Paul Hylbert what made his company special, one of his first replies is that ProBuild was in the majority of the top 100 markets.
But big builders didn't deliver. Local divisions rebelled when national headquarters tried to tell them what materials to use in framing and filling out homes. Slowly, executives hired to manage those national programs for builders started falling away. Buying remained local, particularly after the housing downturn. And that in turn reduced the value of being a national brand.
Early on during the housing crash, I would joke that we'll soon learn which dealers had taken heed of the Biblical story about the seven fat and seven lean years. But as we progressed in what became a 75% peak-to-trough decline in housing starts, that joke stopped being funny. Outside of survivalists, who creates a business plan to anticipate a 75% drop in business? ProBuild was set up to outlast a downturn, but more like we saw in the days of Richard Nixon, not Herbert Hoover.
Check out this slide, showing the declines in store numbers and revenues that building material suppliers suffered between when the 2007 and 2012 economic censuses were taken. One out of five companies failed. One of the casualties was Ply Mart, a company that was ProSales' Dealer of the Year in January 2007. Eighteen months later, it was out of business.
4. Mis-Spent Technology
Even if it's never been publicly revealed how much money ProBuild lost over the years--rumors place it at over $1 billion--there's little question that one of the biggest rat-holes involved the attempt to build a common computer system. Here again, the idea made sense: Technology can reveal opportunities, cut costs, and boost profits, especially if your business plan counted on being able to slice and dice numbers coming in from a bigger pro-oriented LBM service market than had ever been attempted before. Technological gains had revolutionized the financial world and scores of other industries. Why not lumberyards?
Thus it was that one of Fidelity Investments' most famed tech administrators was coaxed out of retirement to start building a computer system that was intended to be a money maker, not just a money counter. Such big thinking led to engaging Oracle rather than some dealer specialty firm to build the colossus.
But it turned out that dealers aren't like other people. Our staffs had gotten so used to green screens that they had become masters of an arcane, almost lost art of data entry. Oracle assumed otherwise, and created a system that--no doubt quite logically to them--depended on using a mouse and a point-and-click system. One ProBuild executive who had been based in Oklahoma told me the new system slowed his staff down so much he called headquarters and said he'd have to add an extra desk person for every shift at every store just to be as productive as his people used to be on the old system.
One other note about technology: We tend to forget how fast it's developed. Google Drive, which is the foundation for a distributed company like Central Network Retail Group, is just three years old. Cloud computing was more concept than reality when ProBuild's IT team went to work. Had they waited just a few years, who knows how much cheaper--and more successful--their project would have been?
5. MBAs
Hylbert has joked that ProBuild chose Denver as its headquarters because it was as far from its Boston-based owners as he thought management could get. It wasn't far enough. Numerous people have told me that Devonshire Investors was by no means a passive owner. That involvement appears to have led to conflicts between executives with sawdust in their veins and overseers who felt they knew how to manage a business. One result was that the headquarters staff grew to what the lumber vets regarded as elephantine proportions.
You also could see the conflict on a local level. Many individual yards could boast of great records serving small, custom builders. I've heard numerous stories about those yards getting orders from HQ to start pursuing big builders rather than continuing doing what had brought them success. By the time the crash came, they had lost their old business and hadn't gained many new clients. Result: Poverty.
This isn't to say that building material supply is such a unique business it defies normal business rules; from groceries to department stores to office supply houses, business gurus can point to dozens of industries that have gone through consolidations. Is building material supply really all that different? Well, yes, if only because of how geography drives differences in the ways we build homes. Building material dealers aren't like fast-food franchises, where the goal is to provide a slavishly consistent product regardless of whether you're in Dayton or Denver, because that's what the customer expects and that's how you maximize profit. Today, the mantra to LBM profits increasingly includes words like "flexibility" and "lean management."
I can think of other mistakes--for one, opening yards around Pittsburgh was a doozy--but the Big Five reasons cited above were enough to cripple what once was the grandest attempt ever to capture the pro market. Now Builders FirstSource is going to try to parlay ProBuild's assets into an even bigger enterprise. By 2020, we'll know whether it succeeded or history repeated itself.
